Saturday, May 29, 2010

BP oil spill

Million dollar fines and compensation claims may dent the profits of BP and other companies admitting responsibility for ecological disasters but, on their own, are they enough of a deterrent?

The full cost of the oil spill in the Gulf of Mexico to marine and coastal ecology along the US south east coastline, both now and in the future, is only just being realised.

BP has admitted 'full responsibility' for the spill {1}, which occurred after an underwater explosion on its Deepwater Horizon oil rig. A blow-out prevention device that guards against such accidents was not working and an extra device fitted for emergencies was not present on the oil rig.

How much is enough?

In a damning statement, the US environmental group the Sierra Club {2} said that BP, which makes more in profit in a week than it has spent on responding to the oil spill so far, should be liable for a limitless amount of costs.

'There is no limit on the damage done to wildlife. There is no limit on the damage done to coastal communities. There is no limit on the loss of jobs in fishing and tourism. There shouldn't be a limit on the amount that oil companies like BP are required to pay for cleanup', a spokesperson said.

Already more than 19,000 compensation claims have been made, mostly from fishermen. However, the maximum oil companies like BP are liable to pay for such claims is $75 million. A bill aimed at increasing that liability cap to $10 billion has so far been blocked by lawmakers in the Senate who offer the excuse it could adversely impact on small oil drilling companies who can't afford the liability.

BP is still likely to have to pay for most of the clean-up costs associated with the spill, estimated to be as high as $20 billion. Some believe it should also be forced to pay to restore coastal wetlands and ensure the recovery of any wildlife that survive the disaster.

A hopeless deterrent

But are such costs alone likely to prevent future disasters? Not according to the Institute for Policy Studies (IPS) {3}, which says BP has a history of big pay-outs. Only last year it paid a $87.43 million fine for health and safety mistakes that led to the death of fifteen workers and injury to 170 in an explosion at its Texas City refinery in March 2005.

'That may sound like a lot', says IPS director Daphne Wysham, 'but BP made $163 billion in profits between 2001 and 2009 and another $5.6 billion in the first three months of 2010. Along the way it paid fines for violating the law that totalled roughly $530 million, or one-third of one per cent of the company's profits over the same period.'

Polly Higgins, a campaigning environmental lawyer, says in the end fines were 'hopeless' at deterring companies from taking potentially devastating risks, particularly large multinationals like BP whose profits exceed the GDP of a small country.

'These companies already factor in the legal fine costs - it's an externality that in the end the person buying their final product pays a bit extra to cover', she says.

Shareholder pressure

However, others say BP's falling shareprice and likely drop in annual dividend payout could see shareholders start arguing for more stringent safety measures to prevent the risk of ecological disasters.

Ben Bundock, from legal activists ClientEarth {4}, says BP's response so far to the outbreak is likely as much as about safeguarding against less tangible losses than anything else.

'This isn't just an environmental issue; its a business issue for BP because their reputation is also at stake. They have a relationship with the US authorities to maintain. There could also be a loss of access to new markets and not to mention the billions in share price value.

'When risks are this large, shareholders may start to become more proactive about pushing directors to take account of safety mechanisms to avoid such disasters', says Bundock.

Time for an ecocide law

Higgins says falls in company share prices after previous oil disasters did not last long and were not proven to be an 'effective deterrent' to multinational giants like BP. She argues that the only effective deterrent is an international 'ecocide law' {5} to prosecute companies that damage the environment in the same way that individuals are prosecuted for genocide or war crimes.

The International Criminal Court (ICC) {6} set up in 2002 is currently limited to prosecution of individuals of four crimes: genocide, crimes against humanity, war crimes and the crime of aggression. Higgins says it should now include another - ecocide - defined as 'the extensive destruction, damage to or loss of ecosystem(s) of a given territory, whether by human agency or by other causes, to such an extent that peaceful enjoyment by the inhabitants of that territory has been severely diminished'.

'The international crime of ecocide would legally bind BP to take full responsibility for the damage and destruction to, or loss of, ecosystems caused by this incident. Where a large oil spill causes large, long term or severe ecosystem destruction, ecocide prosecution will attract imprisonment of the CEO and liability for restorative justice', says Higgins, who explains this would involve oil companies actively repairing the damage they had caused and not just paying a fine and leaving.

She says the burden of eco-responsibility would provide a strong incentive to oil companies not [to] risk such potentially damaging projects in place from the outset.

Small countries

US activist groups, such as Public Citizen {7}, agree that it is now time to advocate more preventative measures rather than 'polluter pays' strategies.

Director Tyson Slocum says BP's long list of fines, totalling more than $730 million in the US alone in the last few years, shows money alone is not enough.

'The fines clearly have not been a deterrent to BP committing multiple crimes. It is only when we consider permanent sanctions (revocation of leasing rights, withdrawal of corporate charter, et cetera) or criminal prosecution of individual executives will companies get the message.'

Bundock, from Client Earth, says that, rather than the US, it is likely to be smaller, less powerful countries where oil companies have no vested interest in being cooperative that would benefit most from an international crime of ecocide and restorative justice.

'If the oil spill had occurred off the African coast would the response have been as quick? Look at how long it too for the Trafigura incident, when waste was illegally dumped in Cote d'Ivoire, to come to the forefront of international media. The US administration is in a much stronger position to go up against an international multinational but it won't always be so with environmental disasters', he says.

Have you heard the latest news.The Democrats are trying to raise the cap on oil company's who cause oil spills. Currently the cap is set at 70 million...a pretty paltry amount.Democrats wanted to raise that to 10 billion. Republicans countered that that would hurt the small drillersDemocrats then proposed no limit at all. Oil companies should just pay whatever the cost isRepublicans again objected that this would hurt the big oil companies

By opposing a law that would make oil companies responsible for the cost of an oil spill...no matter what the cost, the Republicans are showing whose side they are on....and it isn't the taxpayer.

Where are these kooks coming from and how are they being allowed to get away with it by claiming that to make an oil company responsible for unlimited costs might be too big a burden to bear.

I can see where they are headed.BP may end up being asked to pay 10s of billions of dollars to stop the leak, clean up the mess and compensate people for their losses. Republicans are worried the price may be too high for the company and are seeking to limit BP's exposure.Problem is...what BP doesn't pay...the US taxpayer and small businesses will end up paying